Smug Central Planners

Looking back at the past decade, it would be easy to conclude that central planners have good reason to be smug. After all, the Earth is still turning. The “GFC” did not sink us, instead, we were promptly gifted the biggest bubble of all time –in everything, to boot. We like to refer to it as the GBEB (“Great Bernanke Echo Bubble”) in order to make sure its chief architect is not forgotten.

Image credit: Sharon Hatley

Naturally, we were premature in calling for the pompes funèbres and the gravediggers in order to inter the GBEB in late March, but the revival in US markets was a muted one and the funeral rites certainly continued in numerous emerging markets.

China is widely considered an important element in assorted bubble revival operations these days and the vast credit expansion ordered by the Politburo after the GFC bears testimony to this. The seeming success of these interventions does breed smugness – consider an excerpt from a panel at the last Davos pow-wow shown below, in which Fang Xinghai, Vice-Chairman of the China Securities Regulatory Commission, hails the ability of the government to intervene forcefully and quickly as the be-all and end-all needed to keep things on an even keel.

To be sure, he does admit right away that there are “costs” associated with this, without going into too much detail about them. He also points out to his fellow panelists that when your stock market is more overvalued than at the peak in 1929 (showing them a chart virtually all of Wall Street has tried to studiously ignore for the past three or four years), you have no business worrying about bubbles elsewhere. Perhaps you should be more concerned about your own.

Let us take a brief look. This is a lengthy video, and the part we are referring to begins at 48:52. Here is a direct link with the start time embedded, alternatively you can look at the version of the video embedded below, by navigating to the 48:52 time stamp on your own.

Video Length: 01:08:28

Fang Xinghai opines on the US stock market bubble and the supposed invincibility of China’s financial system

We will give Fang this: people trying to bet on a “financial collapse” in China haven’t had much success so far (if one disregards recent weakness in the yuan). It is true that the government can very quickly and decisively intervene by ordering credit expansion ex nihilo and misdirecting scarce resources into more and more capital malinvestment.